Trump’s roving banditry will undermine the US economy

{"text":[[{"start":null,"text":"

"}],[{"start":7.34,"text":"Given Donald Trump’s abasement before Vladimir Putin, it wasn’t the smartest move for the EU to compromise its free-trade principles in July’s tariff agreement for fear the US would stop backing Ukraine. As a string of people going back to New York construction and real estate companies in the 1970s could have told you, Trump doesn’t keep promises."}],[{"start":31.82,"text":"It’s now commonplace to say Trump’s shakedowns of trading partners and corporations for tax revenue (even entirely leaving aside the issue of his personal wealth) resemble a mafia boss or a crony-capitalist dictator in a developing country. It’s actually worse than that."}],[{"start":51.15,"text":"Good mafia bosses and efficient autocrats may be extractive, but they are predictable. Trump’s raids on companies and governments on behalf of the US Treasury are capricious — consider his reported demand that Switzerland buy off the US tariffs with investments and his sudden 15 per cent levy on the chip companies Nvidia and AMD’s semiconductor sales to China. They create uncertainty that weakens the entire basis of business and trade."}],[{"start":83.22999999999999,"text":"The benefits that Trump offered in his tariff deals often fail to materialise or are disputed as soon as the deal is signed. The UK, one of the first countries to pay the US the equivalent of protection money in its agreement in May, is still waiting for some of the benefits in the form of zero tariffs for a portion of its steel exports. The Japan agreement in July headed straight into a fog of uncertainty over disputed provisions on investment and on import taxes. The EU kept complaining it didn’t know what Trump wanted — it’s a category error to assume he ever has coherent demands. "}],[{"start":124.42999999999999,"text":"One of the earliest attempts to analyse southern Italy’s mafia, by the sociologist Diego Gambetta, posited that organised crime fulfils a function in a society marked by profound distrust. Paying protection money provides security of contract and the settling of disputes in an otherwise chaotic business environment. But the mafia has to be competent and reliable. Dealing with Trump often means not just an offer you can’t refuse but an offer you can’t rely on — sometimes an offer you can’t understand. If the EU’s tariffs were protection money on behalf of Ukraine, Trump glaringly failed to deliver the quid pro quo. Perhaps he simply inferred from the concession that the EU was a weakling to be trampled underfoot."}],[{"start":178.43,"text":"It’s still worth individual governments and companies dealing with Trump. The tax on Nvidia and AMD makes no sense from a national security perspective (protecting sensitive technology) but it benefits those companies to agree as the price of lifting export controls. The loophole for iPhones in Trump’s tariffs remains, no doubt partly thanks to Apple’s Tim Cook promising to invest in the US and the golden sacrifice he brought to the Oval Office. It’s distortions to the wider market that cause harm."}],[{"start":214.37,"text":"The tax itself is not necessarily bad. Expanding the 15 per cent levy systematically to other industries, as Treasury secretary Scott Bessent suggested, wouldn’t be a great idea (it’s unconstitutional, for a start) but at least companies could plan. It’s the overall sense of policy randomness that’s so damaging."}],[{"start":237.46,"text":"The late academic Mancur Olson analysed this phenomenon by distinguishing stationary from roving bandits. A stationary bandit who controls a mountain pass will exact moderate and predictable tribute to ensure trade continues to flow — in other words, a tax. A roving bandit without a fixed territory will steal everything from travellers and thereby deter all trade."}],[{"start":266.01,"text":"The autocrats of those countries that achieved middle or high-income status during the cold war, such as Suharto in Indonesia or Park Chung-hee in South Korea, rewarded favourites through corruption but still insisted their companies perform well. A dictator like Zaire’s Mobutu Sese Seko essentially looted everything not nailed down, and his country stayed desperately poor. "}],[{"start":294.59,"text":"China is hardly a model of regulatory consistency and clean government. But in key industries like electric vehicles it has created globally successful companies by subjecting them to fierce competition, not by giving political favourites an easy tax or regulatory ride. "}],[{"start":313.73999999999995,"text":"It will take a long time for Trump’s roving banditry, particularly his trade deals, seriously to weaken the US economy. About half of its economy is made up of small and medium-size businesses. But the direction is clear. The US will seem a more fickle place to do business, pushing investment and trade elsewhere. American trade policy and the US corporate tax code have never been things of elegant simplicity, but this will seem like a golden age of stability compared to the era of politicised shakedowns now upon us."}],[{"start":361.08,"text":""}]],"url":"https://audio.ftmailbox.cn/album/a_1755861750_1411.mp3"}